In 2012, R&D spending in US dollars for 21 major publicly held analytical instrument and lab product companies (see table, page 6) increased 6.0% but maintained pace with sales, which grew 6.6%. Given the slower top-line growth compared with 2011 and concerns over research-related spending, R&D initiatives were focused on higher growth biopharmaceutical, clinical and applied markets.

IBO’s annual survey of R&D expenditures is based on calendar year 2012 results, with the exception of Agilent Technologies (fiscal year ending October 31, 2012) and Oxford Instruments (fiscal year ending March 31). Financial results for European companies are calculated at 2012 constant exchange rates.

Seventeen of the 21 companies in the table reported higher R&D spending in 2012, including 11 with double-digit increases. R&D investments for the largest firms, which had annual sales exceeding $1.5 billion, grew 5.8%, and revenues grew 6.3%. In 2012, several of these companies shifted R&D resources to emerging markets to capitalize on demand and life science funding by governments in Asia.

Thermo Fisher Scientific, Agilent and Life Technologies, which recorded three of the top four largest R&D budgets in 2012 among companies in the table, expanded R&D infrastructure and headcount in Asia Pacific and other emerging markets to localize product applications and develop new technologies. In 2012, Agilent enhanced R&D capabilities in Poland, primarily for X-ray diffraction (see IBO 3/15/13). Life established R&D resources for next generation sequencing and molecular diagnostic instruments in Singapore (see IBO 8/31/12), and Thermo increased R&D headcount at its China Technology Center, which is focused on life science consumables and equipment. Overall, Thermo’s R&D spending grew 10.6% to $376.4 million, including $228 million and $50 million for Analytical Technologies (AT) and Laboratory Products & Services (LPS) segments, respectively. In addition to increased R&D personnel, the AT segment invested in R&D for biotherapeutics, bioprocess, portable analyzers and software. R&D for the LPS was centered on storage freezers and PCR systems.

Agilent invested more heavily in the Life Science (LS) segment in FY12, for which R&D spending grew 5% to $141 million due to the development of biopharmaceutical solutions, especially involving LC, LC/MS and informatics. R&D expenses for the Chemical Analysis segment, which were unchanged at $93 million, were aimed at the new atomic emission spectroscopy and ICP-MS products.

In 2012, Life’s R&D continued to focus on smaller and less expensive sequencing systems, which fit with the company’s expansion in emerging markets such as Brazil, China and India. Despite a similar R&D headcount of 1,200 employees, the firm accelerated the development of Ion Torrent products, which accounted for roughly a third of its R&D budget. Other R&D resources were devoted primarily to consumables and products for the food and BioProduction end-markets. However, Life’s total R&D budget fell 9.5% to $341.9 million due to a $13.3 million decline in compensation and a $13.7 million contingent payment in 2011 related to the acquisition of Ion Torrent (see IBO 8/31/10). Excluding these adjustments, R&D spending would have declined only 2.4%.

Similar to Thermo, PerkinElmer expended R&D resources in China in 2012, especially for diagnostics and environmental applications. In particular, the company reconfigured environmental testing and medical imaging products for the Asian markets. Other development initiatives included informatics products. The acquisition of Caliper Life Sciences (see IBO 9/15/11) elevated PerkinElmer’s R&D budget, which climbed 14.5% to $132.6 million in 2012. As a percentage of sales, R&D spending advanced 25 basis points to 6.2%, as Caliper historically devoted a higher percentage of revenues in R&D than PerkinElmer.

In addition to Thermo and Perkin­Elmer, Merck Millipore and Bruker elevated R&D spending by double digits last year. Merck Millipore’s R&D climbed 23.0% to $212.8 million due to the development of biologics manufacturing products, especially for single-use technologies and biosafety solutions. Bruker’s R&D expenses climbed 10.2% to $195.3 million due to continued product and software innovation in the Chemical & Applied Markets business and a 9.9% increase in R&D headcount.

Rounding out the list of large firms was Waters, which recorded the smallest R&D budget of $96.0 million in 2012 among large companies in the table as a result of its more focused product line. Total R&D spending for Waters grew 4.0% due to investments in UltraPerformance systems and a 4.9% increase in R&D headcount.

Compared with the largest firms, R&D spending for the table’s seven medium-sized firms, which had 2012 sales of $250–$1,500 million, grew at a higher pace of 10.9% due to increased personnel and significant investments by Illumina. Total sales for these companies grew 8.5%.

R&D costs for Illumina climbed 17.3% to $231.0 million, but grew 9.5% excluding stock-based compensation payments. The company elevated R&D headcount for the development of sequencing and bioinformatics products, as well as for clinical trials of MiSeq and cytogenetics products.

Similar to Illumina, R&D investments by FEI, Tecan and Eppendorf grew at or above double digits in 2012 due to added R&D personnel. FEI’s R&D headcount grew 23.6% due to acquisitions and commercialization of new microscope products for oil and gas exploration. FEI’s R&D expenses jumped 21.3% to $95.0 million. As a percentage of sales, FEI’s R&D budget grew 117 basis points to 10.6%, closer to the company’s target of roughly 11% for the next several years. Tecan increased R&D headcount and total R&D expenses by 13.9% and 9.5%, respectively, in 2012 as the company focused on the introduction of its new air-displacement pipetting arm and development of custom liquid handling platforms for partners in the agriculture, medical research and diagnostics markets. R&D for Eppendorf grew 10.7% due to higher investments in cell handling products. Like FEI, R&D for Sartorius’s Laboratory and Services segment expanded 6.9% primarily due to an acquisition (see IBO 10/31/11) and development for lab water systems.

Among the list of medium-sized companies, Oxford Instruments and Affymetrix recorded lower R&D spending in 2012. Reported R&D expenses for Oxford declined 5.8% but increased 5.9% to £25.1 million ($39.8 million) on an adjusted basis. Roughly 67% of total R&D cash expenditures was for Nanotechnology Tools, especially NMR, plasma technology and software. R&D for Industrial Products centered on the development of new portable and handheld XRF analyzers. For fiscal 2012, roughly 41% of sales were derived from new products launched within the previous three years.

Affymetrix cut R&D expenses for the fourth consecutive year despite the acquisition of eBioscience (see IBO 11/30/11), which added $3.8 million. Total R&D spending fell 8.9% to $57.9 million due to reduced headcount. However, the company increased spending on clinical trials for the development of companion diagnostics tests. As a percentage of sales, R&D spending declined 419 basis points to 19.6%, and is projected to decline to 15% of sales this year.

Total R&D expenditures for the seven smaller companies, which had 2012 sales of less than $250 million, declined 7.0%. However, the decline can be attributed to Pacific Biosciences, for which R&D expenses fell 37.4% to $47.6 million due to lower R&D headcount.

R&D spending for the other smaller companies varied due to acquisitions. Abcam, which had a relatively small R&D budget, recorded the largest percentage changes among the companies in the table, as its spending jumped 111.6% to $10.9 million due to acquisitions and the development of immunoassay products. R&D spending for Luminex grew 22.2% to $40.8 million due to the acquisition of GenturaDx (see IBO 7/15/12) and increased development of gene expression assays and portable biodefense products.